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Milestone 02


Environmental Farmers Group


Identify and Work with Sellers


Green Finance Institute / GFI Hive / Investment Readiness Toolkit / Identify and Work with Sellers / Environmental Farmers Group

Project Summary

Environmental Farmers Group (EFG) is a farmer-led organisation focused on delivering environmental improvements financed through nature markets. The farmers work together to identify where natural capital improvements would best be made, and where opportunities exist for nature markets. The EFG shares knowledge and processes across its members to strengthen their position as owners and managers of natural capital. The EFG was launched in May 2022 in the Hampshire Avon river catchment and completed its first trade in March 2023. As of October 2023, it comprises of 257 farmers and 140,000 hectares, with a mix of owner occupiers and tenant farmers, and has since expanded its model elsewhere in England.

Milestone 1: Initial Project Scoping

Often the initial task is to understand the site(s) you want to use and the land use change needed for nature restoration or creation. This includes considering the goals of the land managers involved, the vision within the wider catchment or neighbouring area, and whether there are permits or planning consent needed for any proposed changes.

At this stage, you can also conduct a high-level assessment to determine which revenue streams can be generated from ecosystem services , e.g. carbon credits, flood reduction cost savings, or biodiversity units, which will be crucial for identifying buyer interest.

Finally, it is useful to have an idea of the costs of the project and potential grant funding that may be available to support initial development.

Milestone 2: Identify and Work with Sellers

Initial ownership of the ecosystem services will belong to the landowners or, in some cases, the tenants of the sites that the project is using. However, these can be passed onto others, such as third-party project developers, with appropriate legal arrangements and compensation. In some cases, there may be a sole seller of the ecosystem services, where the site or landholding is large enough that it delivers the volume of ecosystem services needed to cover the costs of the project and attract buyers.

However, in order to achieve scale and impact, a project will likely involve multiple sellers, such as neighbouring farmers and estate managers. Scale of land is often needed to deliver significant environmental outcomes, and also to attract private finance. Project developers must plan how they initially contact and engage with these sellers going forward, building their wants and needs into the project.

Milestone 3: Baseline and Estimate Ecosystem Services

At this point, you will have understood the vision for the project and identified a particular ecosystem service or set of services to be sold. The next step will be to carry out detailed analysis – baselining each ecosystem service and quantifying what will be able to be delivered from the interventions, as well as planning how to monitor and maintain these interventions. You will need to rely heavily on ecological expertise for this more scientific Milestone.

At this step, standards, verification and accreditation methods will be considered in more depth.

Milestone 4: Identify and Work with Buyers

Based on your earlier market analysis in initial project scoping, you will have identified one or more groups of beneficiaries who may be willing to ‘buy’ or pay for the ecosystem service(s) to be created, restored or maintained. Buyers vary – as do their requirements – but at this step, greater buyer engagement is now needed to develop a deal that channels money towards the nature-positive outcomes that your project wants to deliver.

 

 

Milestone 5: Develop Business Case and Financial Model

You’ll have started building your business case and financial model in earlier steps – laying out your project’s vision, the market proposition and estimating costs and income. This step offers a review, in addition to providing details needed to build out the financial model and business case more fully. Both of these key documents will be iterated throughout project development, and will likely be altered during project delivery as new information emerges. These documents are interlinked and, if developed correctly, will ensure your project’s viability and help you with discussions with stakeholders – including sellers, buyers and future investors.

The financial model will also enable you to better understand the type of structure your project may take to attract investment (i.e.a loan, an equity investment, a bond) and what sort of returns you can afford to pay/offer.

Milestone 6: Develop a Governance Structure

A governance structure will inform the way in which the project is run when fully operational and for what purpose. It identifies appropriate decision making processes, who is responsible for what actions, and what controls are in place to make sure that the project is meeting its stated goals, all while abiding by the risk appetite of its engaged stakeholders. The legal entity to host the project will be a key driver in this, and the appropriate choice of entity will be dependent on several factors that are outlined below.

Your governance structure should align with and underpin your business case, as a necessary component of how the project will deliver its environmental outcomes and other strategic targets.

Milestone 7: Identify and Work with Investors

It is important to note that not all projects will need up-front investment, but for those that do, this section provides a framework for thinking around the development of the investment model. This does not constitute financial advice – as the GFI is not licensed to do so. However these considerations are based on the insight offered by project developers and other market stakeholders.

An investor will be a new core stakeholder in your project, and it’s just as important to think of what you require from investors, as much as what they require from you – so that you can build a positive and collaborative relationship with them.

This entails defining the investment ask (in line with the financial model), the strategy for approaching the right investors, and the negotiation of terms that can then be formalised in contract development (Milestone 8).

 

Milestone 8: Establish Legal Contracts and Closing

When all relevant stakeholders have been engaged and their terms of engagement are clarified as much as possible, this is the time to develop the legal contracts and close the deal. This stage is last because legal fees are expensive, and it is generally advised to determine as much as possible in previous stages before starting to draw up contracts in earnest.

Note: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice on how to manage engagement with lawyers and the process of contract development.

The Green Finance Institute is not a firm of solicitors or connected in any way with the courts. The information and opinions we provide in this section and across the Toolkit do not address your individual requirements and are for informational purposes only. They do not constitute any form of legal advice. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from taking any action.

Community Engagement

Community engagement is highly advisable for any project that aims to sell ecosystem services, to ensure fair outcomes for local communities and the long-term success of the project. Project developers can build connections with local stakeholder groups early on to spot both risks and opportunities.

Policy and Regulation

Project developers and enterprises will need to keep a continuous check on how current and future policy may affect the project, and also opportunities for the project to inform policy. The role of private finance for nature across the UK is being encouraged by the UK government and its devolved administrations, and new rules, standards and markets are being developed.

 

Acknowledgements

With many thanks for their time and insight on this case study:

 

Robert Shepherd, Farmer and Board Member, Environmental Farmers Group

Ed Shuldham, Farmer and Scoping Group Member, Environmental Farmers Group

 

Digby Sowerby, Operations Officer, Natural Capital Advisory

Rachel Ridd, Business Officer, Natural Capital Advisory

 

Date published: 10/04/2024

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Why do EFG farmers want to work together?

EFG was first formed through collaboration between cluster farm leads and GWCT. The founder  farmers saw the loss of Basic Payment Scheme (measured as £37m annually within the Hampshire Avon catchment alone) as a threat especially to environmental projects within their cluster.

They also recognised the opportunity that nature markets could bring to sustaining farmers’ income, but that to deliver nature-positive outcomes with these, they need a model that is scalable, commercially viable, and farmer-led.

Ed Shuldham, farmer and Scoping Group Member of the EFG, explains that, before EFG was formed the farmers of the catchments were wary of offers to participate in nature market trades – primarily carbon – and wanted a ‘trusted navigator’ that would help them to make informed decisions and retain control over their land.

EFG has since created a model that aims to help farmers deliver ecological benefits to their land for fair financial reward. It aims for farmers to work together and deliver:

  • Scale – the EFG has expanded to four catchments with 257 expressions of interest and members covering 140,000 hectares.
  • Selling power – By working together, this scale generated (along with market intelligence) gives farmers a stronger negotiating position with buyers.
  • Farmer autonomy – Farmers are not obligated to take part in nature market deals or trades, and can choose to participate as much as they are comfortable with.
  • Access to opportunity – Farms of all sizes are able to join EFG’s model, and the model can deliver different ecosystem services (carbon, nutrient neutrality, BNG) to different buyers.

 

The EFG itself is farmer led, with governance split between a Board, Executive Team, Steering Groups and the wider farmer membership. You can read more about its governance in Milestone 6.

 

What does EFG do for farmers?

EFG helps its farmer members assess new nature market opportunities. For example, if a farmer member is approached by a third party with an offer to participate in a deal, EFG helps to assess the details of this offer, draft up Heads of Terms and help to ensure that the farmer is getting fair terms for the responsibilities and liabilities they are accepting.

For natural capital support and market intelligence, EFG has also contracted Natural Capital Advisory (NCA), a subsidiary of GWCT, to help with this core function. It works with other service providers, such as ecologists and accountants, on various activities to support this.

Under the EFG membership model:

 

  1. Each member retains decision-making control and decides how they engage with the EFG. For example, they may join simply for the knowledge sharing on nature markets, or fully pursue a deal with a parcel of their land. In return for this, when farmers agree to a new deal, any income from this deal is shared through the EFG’s equalisation model (see below).

 

  1. The EFG also has a Trade Allocation policy. This means that farmers have first rights to any trade that they are approached with directly. Equally, if someone approaches the EFG with a proposed trade, the EFG will distribute to members where it believes the deal is most suited to farmers’ priorities and the ecology of the land.

 

  1. Farmers are permitted to exit the EFG on a fair terms basis. This means farmers can leave the EFG with ease, but EFG has a 12-24 month notice period in place to make sure farmers do not use EFG’s services and then exit to avoid paying commission on trades.

 

EFG is expanding its model and as such, Steering Groups are being created in each new equalisation cell. These Steering Groups are made up of farmers local to the equalisation cell and they provide the momentum and direction in local areas.

NCA has also set up two similar models in the north of England – the Peakland Environmental Farmers and the Swaledale and Wensleydale Environmental Farmers. If you would like to form your own EFG cell in your area, you can express your interest online.

 

How are costs and incomes shared?

To share income from any nature market trades, the EFG uses an ‘equalisation policy’ that means any net profits are split:

  • 88% to the farmer that engages in the trade
  • 9% to other farmers in the local cell of the trading farmer – in recognition for the seller power of the collective and for these farmers helping the EFG to meet its beneficial scale.
  • 3% to the EFG – commission to help cover administrative costs.

EFG incurs costs such as its administrative expenses, legal and professional support fees, knowledge sharing events, and pilot initiatives, such as trialling soil carbon measurements.

To help share costs, farmers pay a subscription of £1.25 / hectare / annum (as of November 2023). These subscription fees are used alongside the 3% commission charges from trades, and other funding that the EFG has received to date, such as grant funding and local business sponsorship (see Milestone 1 for more detail).

 

 

 

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